PF Exam 1 Chapter 3

A tax credit of $220 for a person in a 28% tax bracket would reduce a person's taxes by...

$220

$4,359 was withheld during the year and taxes owed were $4,140. Would the person owe an additional amount or receive a refund? What is the amount?

$4,359 withheld from paycheck for taxes $4,140 actually owed in taxes Refund: $219

George had earnings from his salary of $53,000; Interest on savings of $1,055; A deductable contribution to an IRA of $2,350; Dividends from a mutual funds of $725. Geroge's adjusted gross income (AGI) would be:

$53,000 (Salary) + $1,055 (interest on savings + $725 (dividends) - $2,350 (IRA) = $52,430

types of Audits

1. Correspondence audit (by mail, clarification) 2. Field Audit (IRS agent goes to home or place of business..no good)

George Franklin paid taxes of $5,250 on a taxable income of $38,000. What was his average tax rate?

5,250/38,000 = 13.82%

Tax credit

An amount subtracted directly from the tax owed

Tax deduction

An expense, such as a charitable contribution, that can be deducted from one's taxable income

A person with a total tax liability of $5,450 and a withholding of federal taxes of $4,100 would mean

They underwithheld $1,350 so they own the government $1,350.

tax avoidance

reducing tax liability through legal techniques

tax evasion

willful failure to pay taxes, illegal methods.